Conditional dependence un NAFTA Block: GARCH model and Copula approach
Main Article Content
Keywords
Conditional Dependence, NAFTA, GARCH, Copula, Contagion Effect
Abstract
This article aims to analyze conditional dependence between the Mexican, American and Canadian stock markets during the period 2003-2018. Archimedean and elliptical Copulas and GARCH and TARCH models are employed to estimate conditional dependence in three subperiods: pre-crisis, crisis and pos- global financial crisis. Results reveal a 38% rise in conditional dependence during the crisis period, in relation to the previous period. On the other hand, the conditional dependence parameter diminishes when asymmetry is included.
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References
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Aloui, R., Aïssa, M. S. B. y Nguyen, D. K. (2013). Conditional dependence structure between oil prices and exchange rates: a cópula-GARCH approach. Journal of International Money and Finance, 32, 719-738.
Bae, K. H. y Karolyi, G. A. (1994). Good news, bad news and international spillovers of stock return volatility between Japan and the US. Pacific-Basin Finance Journal, 2(4), 405-438.
Baig, T. y Goldfajn, I. (1999). Financial market contagion in the Asian crisis. IMF staff papers, 46(2), 167-195.
Baig, T. & Goldfajn, I. (2001). The Russian default and the contagion to Brazil. In International financial contagion (pp. 267-299). Springer, Boston, MA.
Bekaert, G., Ehrmann, M., Fratzscher, M., & Mehl, A. (2014). The global crisis and equity market contagion. The Journal of Finance, 69(6), 2597-2649.
Baur, D. (2003). Testing for contagion-mean and volatility contagion. Journal of Multinational Financial Management, 13(4), 405-422.
Bennet, P. y Kelleher, J. (1988). The International Transmission of Stock Price Disruption in October 1987. Federal Reserve Bank of New York Quarterly Review, 13, 17-33.
Billio, M. y Caporin, M. (2005). Multivariate Markov switching dynamic conditional correlation GARCH representations for contagion analysis. Statistical methods and applications, 14(2), 145-161.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of econometrics, 31(3), 307-327.
Boyer, B. H., Gibson, M. S. y Loretan, M. (1997). Pitfalls in tests for changes in correlations (Vol. 597). Washington, DC: Board of Governors of the Federal Reserve System.
Calvo, G. A., Leiderman, L. y Reinhart, C. M. (1996). Inflows of Capital to Developing Countries in the 1990s. Journal of economic perspectives, 10(2), 123-139.
Casas Monsegny, M. y Cepeda Cuervo, E. (2008). Modelos ARCH, GARCH y EGARCH: aplicaciones a series financieras. Cuadernos de economía, 27(48), 287-319.
Celik, S. (2012). The more contagion effect on emerging markets: The evidence of DCC-GARCH model. Economic Modelling, 29(5), 1946-1959.
Chen, W., Wei, Y., Lang, Q., Lin, Y. y Liu, M. (2014). Financial market volatility and contagion effect: A cópula multifractal volatility approach. Physica A: Statistical Mechanics and its Applications, 398, 289-300.
Cheung, W., Fung, S. y Tsai, S. C. (2010). Global capital market interdependence and spillover effect of credit risk: evidence from the 2007-2009 global financial crisis. Applied Financial Economics, 20(1-2), 85-103.
Chiang, T. C., Jeon, B. N. y Li, H. (2007). Dynamic correlation analysis of financial contagion: Evidence from Asian markets. Journal of International Money and finance, 26(7), 1206-1228.
Chittedi, K. R. (2015). Financial crisis and contagion effects to Indian stock market: ‘DCC–GARCH’ analysis. Global Business Review, 16(1), 50-60.
Díaz R., H., & Bucio, C. (2018). Contagio bursátil en los mercados del TLCAN, países emergentes y el mercado global. Revista mexicana de economía y finanzas, 13(3), 345-362.
Dickey, D. A. y Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
Dickey, D. A. y Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 1057-1072.
Dimitriou, D., Kenourgios, D. y Simos, T. (2013). Global financial crisis and emerging stock market contagion: A multivariate FIAPARCH–DCC approach. International Review of Financial Analysis, 30, 46-56.
Ding, Z., Granger, C. W. y Engle, R. F. (1993). A long memory property of stock market returns and a new model. Journal of empirical finance, 1(1), 83-106.
Forbes, K. J. y Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. The journal of Finance, 57(5), 2223-2261.
Frankel, J. y Schmukler, S. (1996). Crisis, contagion, and country funds: Effects on East Asia and Latin America. En R. Glick (ed.), Managing Capital Flows and Exchange Rates: Lessons from the Pacific Rim (pp. 232- 266). Cambridge: Cambridge University Press.
Glosten, L. R., Jagannathan, R. y Runkle, D. E. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. The journal of finance, 48(5), 1779-1801.
Haile, F. y Pozo, S. (2008). Currency crisis contagion and the identification of transmission channels. International Review of Economics & Finance, 17(4), 572-588.
Hammoudeh, S., Nguyen, D. K., Reboredo, J. C. y Wen, X. (2014). Dependence of stock and commodity futures markets in China: Implications for portfolio investment. Emerging Markets Review, 21, 183-200.
Hernández, A. y Sánchez, J. A. (2009). Cópula and Extreme-Value Based Methodology for Estimating the Required Economic Capital in a Retail-Credit Portfolio. Revista de Análisis Económico/ Economic Analysis Review, 24(2), 95-132.
Hsin, C. W. (2004). A multilateral approach to examining the comovements among major world equity markets. International review of financial analysis, 13(4), 433-462.
Huang, J. J., Lee, K. J., Liang, H. y Lin, W. F. (2009). Estimating value at risk of portfolio by conditional copula-GARCH method. Insurance: Mathematics and economics, 45(3), 315-324.
Jondeau, E. y Rockinger, M. (2006). The copula-garch model of conditional dependencies: An international stock market application. Journal of international money and finance, 25(5), 827-853.
Joshi, P. (2012). Financial crisis and volatility behaviour of stock markets of Asia. Quest-Journal of Management and Research, 2(2), 35-44.
King, M. A. y Wadhwani, S. (1990). Transmission of volatility between stock markets. The Review of Financial Studies, 3(1), 5-33.
Loretan, M. y English, W. B. (2000). Evaluating “correlation breakdowns” during periods of market volatility. International Finance Discussion Papers, 658.
Marçal, E. F., Valls Pereira, P. L., Martin, D. M. L. y Nakamura, W. T. (2011). Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals. Applied Economics, 43(19), 2365-2379.
Mokni, K. y Mansouri, F. (2017). Conditional dependence between international stock markets: A long memory GARCH-copula model approach. Journal of Multinational Financial Management, 42, 116-131.
Moreno, M. R. (2017). Contagio financiero: modelación con fractales y cópulas desde la crisis subprime a la eurozona y su repercusión en LATAM (Tesis doctoral). UNAM, Facultad de Economía, División de Estudios
de Posgrado, Ciudad de México.
Musumeci, J. J. y Sinkey, J. F. (1990). The international debt crisis, investor contagion, and bank security returns in 1987: The Brazilian experience. Journal of Money, Credit and Banking, 22(2), 209-220.
Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica: Journal of the Econometric Society, 59(2), 347-370.
Nguyen, C., Bhatti, M. I. y Henry, D. (2017). Are Vietnam and Chinese stock markets out of the US contagion effect in extreme events? Physica A: Statistical Mechanics and its Applications, 480, 10-21.
Rodríguez, J. C. (2007). Measuring financial contagion: A copula approach. Journal of empirical finance, 14(3), 401-423.
Samarakoon, L. P. (2011). Stock market interdependence, contagion, and the US financial crisis: The case of emerging and frontier markets. Journal of International Financial Markets, Institutions and Money, 21(5), 724-742.
Sklar, A. (1973). Random variables, joint distribution functions, and copulas. Kybernetika, 9(6), 449-460.
Sosa, M., Bucio, C. y Cabello, A. (2015). Mercados de Capitales del Bloque Bric+México: Dependencia Estimada con un Enfoque de Cópulas. Investigación Administrativa, 44(115), 70-86.
Su, E. (2017). Measuring and testing tail dependence and contagion risk between major stock markets. Computational Economics, 50(2), 325-351.
Tatom, J. A. (2009). The US foreclosure crisis: a two-pronged assault on the economy. En G. Kaufman y R. Bliss (eds.), Financial Institutions and Markets: Current Issues in Financial Markets (pp. 131-154). New York: Palgrave Macmillan.
Taylor, S. (1986). Modelling financial time series. New York, NY: Wiley.
Wei, Y. H. y Zhang, S. Y. (2004). Dependence Analysis of Finance Markets: Copula-GARCH Model and Its Application [J]. Systems Engineering, 4, 7-12.
Zakoian, J. M. (1994). Threshold heteroskedastic models. Journal of Economic Dynamics and control, 18(5), 931-955.
Aloui, R., Aïssa, M. S. B. y Nguyen, D. K. (2013). Conditional dependence structure between oil prices and exchange rates: a cópula-GARCH approach. Journal of International Money and Finance, 32, 719-738.
Bae, K. H. y Karolyi, G. A. (1994). Good news, bad news and international spillovers of stock return volatility between Japan and the US. Pacific-Basin Finance Journal, 2(4), 405-438.
Baig, T. y Goldfajn, I. (1999). Financial market contagion in the Asian crisis. IMF staff papers, 46(2), 167-195.
Baig, T. & Goldfajn, I. (2001). The Russian default and the contagion to Brazil. In International financial contagion (pp. 267-299). Springer, Boston, MA.
Bekaert, G., Ehrmann, M., Fratzscher, M., & Mehl, A. (2014). The global crisis and equity market contagion. The Journal of Finance, 69(6), 2597-2649.
Baur, D. (2003). Testing for contagion-mean and volatility contagion. Journal of Multinational Financial Management, 13(4), 405-422.
Bennet, P. y Kelleher, J. (1988). The International Transmission of Stock Price Disruption in October 1987. Federal Reserve Bank of New York Quarterly Review, 13, 17-33.
Billio, M. y Caporin, M. (2005). Multivariate Markov switching dynamic conditional correlation GARCH representations for contagion analysis. Statistical methods and applications, 14(2), 145-161.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of econometrics, 31(3), 307-327.
Boyer, B. H., Gibson, M. S. y Loretan, M. (1997). Pitfalls in tests for changes in correlations (Vol. 597). Washington, DC: Board of Governors of the Federal Reserve System.
Calvo, G. A., Leiderman, L. y Reinhart, C. M. (1996). Inflows of Capital to Developing Countries in the 1990s. Journal of economic perspectives, 10(2), 123-139.
Casas Monsegny, M. y Cepeda Cuervo, E. (2008). Modelos ARCH, GARCH y EGARCH: aplicaciones a series financieras. Cuadernos de economía, 27(48), 287-319.
Celik, S. (2012). The more contagion effect on emerging markets: The evidence of DCC-GARCH model. Economic Modelling, 29(5), 1946-1959.
Chen, W., Wei, Y., Lang, Q., Lin, Y. y Liu, M. (2014). Financial market volatility and contagion effect: A cópula multifractal volatility approach. Physica A: Statistical Mechanics and its Applications, 398, 289-300.
Cheung, W., Fung, S. y Tsai, S. C. (2010). Global capital market interdependence and spillover effect of credit risk: evidence from the 2007-2009 global financial crisis. Applied Financial Economics, 20(1-2), 85-103.
Chiang, T. C., Jeon, B. N. y Li, H. (2007). Dynamic correlation analysis of financial contagion: Evidence from Asian markets. Journal of International Money and finance, 26(7), 1206-1228.
Chittedi, K. R. (2015). Financial crisis and contagion effects to Indian stock market: ‘DCC–GARCH’ analysis. Global Business Review, 16(1), 50-60.
Díaz R., H., & Bucio, C. (2018). Contagio bursátil en los mercados del TLCAN, países emergentes y el mercado global. Revista mexicana de economía y finanzas, 13(3), 345-362.
Dickey, D. A. y Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
Dickey, D. A. y Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: Journal of the Econometric Society, 1057-1072.
Dimitriou, D., Kenourgios, D. y Simos, T. (2013). Global financial crisis and emerging stock market contagion: A multivariate FIAPARCH–DCC approach. International Review of Financial Analysis, 30, 46-56.
Ding, Z., Granger, C. W. y Engle, R. F. (1993). A long memory property of stock market returns and a new model. Journal of empirical finance, 1(1), 83-106.
Forbes, K. J. y Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. The journal of Finance, 57(5), 2223-2261.
Frankel, J. y Schmukler, S. (1996). Crisis, contagion, and country funds: Effects on East Asia and Latin America. En R. Glick (ed.), Managing Capital Flows and Exchange Rates: Lessons from the Pacific Rim (pp. 232- 266). Cambridge: Cambridge University Press.
Glosten, L. R., Jagannathan, R. y Runkle, D. E. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. The journal of finance, 48(5), 1779-1801.
Haile, F. y Pozo, S. (2008). Currency crisis contagion and the identification of transmission channels. International Review of Economics & Finance, 17(4), 572-588.
Hammoudeh, S., Nguyen, D. K., Reboredo, J. C. y Wen, X. (2014). Dependence of stock and commodity futures markets in China: Implications for portfolio investment. Emerging Markets Review, 21, 183-200.
Hernández, A. y Sánchez, J. A. (2009). Cópula and Extreme-Value Based Methodology for Estimating the Required Economic Capital in a Retail-Credit Portfolio. Revista de Análisis Económico/ Economic Analysis Review, 24(2), 95-132.
Hsin, C. W. (2004). A multilateral approach to examining the comovements among major world equity markets. International review of financial analysis, 13(4), 433-462.
Huang, J. J., Lee, K. J., Liang, H. y Lin, W. F. (2009). Estimating value at risk of portfolio by conditional copula-GARCH method. Insurance: Mathematics and economics, 45(3), 315-324.
Jondeau, E. y Rockinger, M. (2006). The copula-garch model of conditional dependencies: An international stock market application. Journal of international money and finance, 25(5), 827-853.
Joshi, P. (2012). Financial crisis and volatility behaviour of stock markets of Asia. Quest-Journal of Management and Research, 2(2), 35-44.
King, M. A. y Wadhwani, S. (1990). Transmission of volatility between stock markets. The Review of Financial Studies, 3(1), 5-33.
Loretan, M. y English, W. B. (2000). Evaluating “correlation breakdowns” during periods of market volatility. International Finance Discussion Papers, 658.
Marçal, E. F., Valls Pereira, P. L., Martin, D. M. L. y Nakamura, W. T. (2011). Evaluation of contagion or interdependence in the financial crises of Asia and Latin America, considering the macroeconomic fundamentals. Applied Economics, 43(19), 2365-2379.
Mokni, K. y Mansouri, F. (2017). Conditional dependence between international stock markets: A long memory GARCH-copula model approach. Journal of Multinational Financial Management, 42, 116-131.
Moreno, M. R. (2017). Contagio financiero: modelación con fractales y cópulas desde la crisis subprime a la eurozona y su repercusión en LATAM (Tesis doctoral). UNAM, Facultad de Economía, División de Estudios
de Posgrado, Ciudad de México.
Musumeci, J. J. y Sinkey, J. F. (1990). The international debt crisis, investor contagion, and bank security returns in 1987: The Brazilian experience. Journal of Money, Credit and Banking, 22(2), 209-220.
Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica: Journal of the Econometric Society, 59(2), 347-370.
Nguyen, C., Bhatti, M. I. y Henry, D. (2017). Are Vietnam and Chinese stock markets out of the US contagion effect in extreme events? Physica A: Statistical Mechanics and its Applications, 480, 10-21.
Rodríguez, J. C. (2007). Measuring financial contagion: A copula approach. Journal of empirical finance, 14(3), 401-423.
Samarakoon, L. P. (2011). Stock market interdependence, contagion, and the US financial crisis: The case of emerging and frontier markets. Journal of International Financial Markets, Institutions and Money, 21(5), 724-742.
Sklar, A. (1973). Random variables, joint distribution functions, and copulas. Kybernetika, 9(6), 449-460.
Sosa, M., Bucio, C. y Cabello, A. (2015). Mercados de Capitales del Bloque Bric+México: Dependencia Estimada con un Enfoque de Cópulas. Investigación Administrativa, 44(115), 70-86.
Su, E. (2017). Measuring and testing tail dependence and contagion risk between major stock markets. Computational Economics, 50(2), 325-351.
Tatom, J. A. (2009). The US foreclosure crisis: a two-pronged assault on the economy. En G. Kaufman y R. Bliss (eds.), Financial Institutions and Markets: Current Issues in Financial Markets (pp. 131-154). New York: Palgrave Macmillan.
Taylor, S. (1986). Modelling financial time series. New York, NY: Wiley.
Wei, Y. H. y Zhang, S. Y. (2004). Dependence Analysis of Finance Markets: Copula-GARCH Model and Its Application [J]. Systems Engineering, 4, 7-12.
Zakoian, J. M. (1994). Threshold heteroskedastic models. Journal of Economic Dynamics and control, 18(5), 931-955.